TopBuild Reports Second Quarter 2020 Results

Rhea-AI Summary

TopBuild Corp. (NYSE:BLD) reported Q2 2020 results, showing a 2.1% decline in net sales to $646.1 million due to COVID-19 impacts. Despite this, gross margin increased 110 basis points to 27.6%, and adjusted operating margin rose 130 basis points to 12.9%. Net income reached $55.5 million or $1.67 per diluted share. Cash and equivalents stood at $258.8 million, with total liquidity of $648.5 million. CEO Jerry Volas expressed confidence in navigating ongoing challenges and opportunities as the company resumes its acquisition program.

Positive

• Gross margin increased 110 basis points to 27.6%.
• Adjusted operating margin rose 130 basis points to 12.9%.
• Net income improved to $55.5 million, or $1.67 per diluted share.
• Strong liquidity position with total liquidity of $648.5 million.

Negative

• Net sales decreased by 2.1% due to volume declines from COVID-19.
• Sales volume for TruTeam fell by 5.5%.

• 2.1% decrease in net sales
• 110 bps gross margin expansion, 130 bps on an adjusted basis
• 12.5% operating margin, 12.9% on an adjusted basis, up 130 bps
• $1.67 net income per diluted share, $1.68 on an adjusted basis
• 16.7% adjusted EBITDA margin, up 250 bps

Moving Forward with Capital Allocation Program

DAYTONA BEACH, Fla., Aug. 04, 2020 (GLOBE NEWSWIRE) -- TopBuild Corp. (NYSE:BLD), a leading installer and distributor of insulation and building material products today reported results for the second quarter ended June 30, 2020. 

Jerry Volas, Chief Executive Officer, stated, “We are extremely pleased with our second quarter results.  Our team did an outstanding job flexing our business model and driving further efficiencies throughout our Company as we responded to state shutdowns, project delays and widespread uncertainty related to COVID-19.  The strong performance we achieved at both TruTeam and Service Partners is evidence of this success and demonstrates the strength of our uniquely diversified business platform.

“As we move through the second half of the year, we are confident in our ability to successfully meet the challenges and opportunities that may lie ahead.”

Second Quarter Financial Highlights
(unless otherwise indicated, comparisons are to the quarter ended June 30, 2019)

• Net sales declined 2.1% to $646.1 million, primarily driven by volume declines related to the impact of the COVID-19 pandemic. Same branch contributed 99.0% of total revenue.
   
• Gross margin increased 110 basis points to 27.6%.  On an adjusted basis, gross margin increased 130 basis points to 27.8%.
   
• Operating profit was $80.5 million, compared to operating profit of $76.0 million a 5.8% improvement.  On an adjusted basis, operating profit was $83.5 million, compared to $76.4 million, a 9.3% improvement.
   
• Operating margin was 12.5%, up 100 basis points.  Adjusted operating margin improved 130 basis points to 12.9%.
   
• Net income was $55.5 million, or $1.67 per diluted share, compared to $52.1 million, or $1.51 per diluted share. Adjusted income was $55.7 million, or $1.68 per diluted share, compared to $49.5 million, or $1.43 per diluted share. 
   
• Adjusted EBITDA was $107.8 million, compared to $94.0 million, a 14.6% increase, and adjusted EBITDA margin improved 250 basis points to 16.7%. 
   
• At June 30, 2020, the Company had cash and cash equivalents of $258.8 million and availability under its revolving credit facility of $389.6 million for total liquidity of $648.5 million.

Six Month Financial Highlights
(unless otherwise indicated, comparisons are to six months ended June 30, 2019)

• Net sales increased 1.6% to $1,299.3 million. On a same branch basis, revenue increased 0.6% to $1,287.7 million. 
   
• Gross margin expanded 110 basis points to 26.9%. On an adjusted basis, gross margin expanded 130 basis points to 27.1%.
   
• Operating profit was $150.4 million, compared to operating profit of $132.7 million, a 13.4% improvement.   On an adjusted basis, operating profit was $153.8 million, compared to $135.5 million, a 13.5% improvement.
   
• Operating margin was 11.6%, a 120-basis point improvement.  On an adjusted basis, operating margin improved 120 basis points to 11.8%. 
   
• Net income was $106.3 million, or $3.18 per diluted share, compared to $90.0 million, or $2.60 per diluted share.  Adjusted income was $101.6 million, or $3.04 per diluted share, compared to $86.1 million, or $2.49 per diluted share. 
   
• Adjusted EBITDA was $196.1 million, compared to $168.6 million, a 16.4% increase.  Adjusted EBITDA margin was 15.1%, a 190-basis point improvement.

Operating Segment Highlights ($ in 000s)
(comparisons are to the period ended June 30, 2019)

TruTeam	3 Months Ended 6/30/20			6 Months Ended 6/30/20				Service Partners	3 Months Ended 6/30/20			6 Months Ended 6/30/20
Sales	$466,569			$942,442				Sales	$216,336			$430,558
Change								Change
Volume		(5.5%)			(1.6%)			Volume		1.7%			2.8%
Price		0.7%			1.4%			Price		(0.4%)			0.3%
M&A		1.4%			1.2%			M&A		0.0%			0.0%
Total Change		(3.4%)			1.1%			Total Change		1.3%			3.0%
Operating Margin		14.9%			13.8%			Operating Margin		11.2%			11.3%
Change	70 bps			100 bps				Change	130 bps			130 bps
Adj. Operating Margin		15.2%			14.0%			Adj. Operating Margin		11.6%			11.6%
Change	100 bps			110 bps				Change	170 bps			160 bps

Capital Allocation
“As a result of the uncertainty in early March related to COVID-19, we suspended our acquisition program.  As the second quarter progressed, the outlook for the housing industry improved, and we are now moving forward with a number of the companies in our robust acquisition pipeline,” noted Volas. 

While the Company completed no acquisitions in the second quarter, it did repurchase 262,889 shares at an average price of $76.17 per share. 

Additional Information
Quarterly supplemental materials, including a presentation that will be referenced on today’s conference call, are available on the “Investors” section of the Company’s website at www.topbuild.com.

Conference Call
A conference call to discuss second quarter 2020 financial results is scheduled for today, Tuesday, August 4, at 9:00 a.m. Eastern time.  The call may be accessed by dialing (888) 225-2706.  The conference call will be webcast simultaneously on the “Investors” section of the Company’s website at www.topbuild.com.  

About TopBuild
TopBuild Corp., a Fortune 1000 Company headquartered in Daytona Beach, Florida, is a leading installer and distributor of insulation and building material products to the U.S. construction industry. We provide insulation and building material services nationwide through TruTeam^®, which has approximately 200 branches, and through Service Partners^® which distributes insulation and building material products from approximately 75 branches.  We leverage our national footprint to gain economies of scale while capitalizing on our local market presence to forge strong relationships with our customers.  To learn more about TopBuild please visit our website at www.topbuild.com.

Use of Non-GAAP Financial Measures
Adjusted EBITDA, incremental EBITDA margin, adjusted EBITDA margin, the “adjusted” financial measures presented above, and figures presented on a “same branch basis” are not calculated in accordance with U.S. generally accepted accounting principles (“GAAP”).  The Company believes that these non-GAAP financial measures, which are used in managing the business, may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. We define same branch sales as sales from branches in operation for at least 12 full calendar months.  Such non-GAAP financial measures are reconciled to their closest GAAP financial measures in tables contained in this press release.  Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results under GAAP.  Additional information may be found in the Company’s filings with the Securities and Exchange Commission which are available on TopBuild’s website under “Investors” at www.topbuild.com.

Safe Harbor Statement
Statements contained herein reflect our views about future periods, including our future plans and performance, constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as “will,” “would,” “anticipate,” “expect,” “believe,” “designed,” “plan,” or “intend,” the negative of these terms, and similar references to future periods.  These views involve risks and uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from the results discussed in our forward-looking statements.  We caution you against unduly relying on any of these forward-looking statements.  Our future performance may be affected by the duration and impact of the COVID-19 pandemic on the United States economy, specifically with respect to residential and commercial construction; our ability to continue operations in markets affected by the COVID-19 pandemic and our ability to collect receivables from our customers; our reliance on residential new construction, residential repair/remodel, and commercial construction; our reliance on third-party suppliers and manufacturers; our ability to attract, develop, and retain talented personnel and our sales and labor force; our ability to maintain consistent practices across our locations; and our ability to maintain our competitive position.  We discuss the material risks we face under the caption entitled “Risk Factors” in our Annual Report for the year ended December 31, 2019, as filed with the SEC on February 25, 2020, as well as under the caption entitled “Risk Factors” in subsequent reports that we file with the SEC.  Our forward-looking statements in this filing speak only as of the date of this filing.  Factors or events that could cause our actual results to differ may emerge from time to time and it is not possible for us to predict all of them.  Unless required by law, we undertake no obligation to update publicly any forward-looking statements as a result of new information, future events, or otherwise.  The Company believes that the non-GAAP performance measures and ratios that are contained herein, which management uses to manage our business, provide users of this financial information with additional meaningful comparisons between current results and results in our prior periods. Non-GAAP performance measures and ratios should be viewed in addition, and not as an alternative, to the Company's reported results under accounting principles generally accepted in the United States. Additional information about the Company is contained in the Company's filings with the SEC and is available on TopBuild's website at www.topbuild.com.

Investor Relations and Media Contact
Tabitha Zane
tabitha.zane@topbuild.com
386-763-8801

TopBuild Corp.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per common share amounts)
		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Net sales		$	646,099			$	660,112			$	1,299,327			$	1,279,442
Cost of sales			468,045				485,190				949,316				948,824
Gross profit			178,054				174,922				350,011				330,618
Selling, general, and administrative expense			97,600				98,883				199,568				197,960
Operating profit			80,454				76,039				150,443				132,658
Other income (expense), net:
Interest expense			(8,277	)			(9,631	)			(17,018	)			(19,232	)
Loss on extinguishment of debt			—				—				(233	)			—
Other, net			89				526				561				858
Other expense, net			(8,188	)			(9,105	)			(16,690	)			(18,374	)
Income before income taxes			72,266				66,934				133,753				114,284
Income tax expense			(16,770	)			(14,883	)			(27,485	)			(24,249	)
Net income		$	55,496			$	52,051			$	106,268			$	90,035
Net income per common share:
Basic		$	1.69			$	1.53			$	3.22			$	2.64
Diluted		$	1.67			$	1.51			$	3.18			$	2.60
Weighted average shares outstanding:
Basic			32,867,842				33,976,169				33,018,148				34,072,314
Diluted			33,202,423				34,557,664				33,401,135				34,630,048

TopBuild Corp.
Condensed Consolidated Balance Sheets and Other Financial Data (Unaudited)
(dollars in thousands)
		As of
		June 30,			December 31,
		2020			2019
ASSETS
Current assets:
Cash and cash equivalents		$	258,837		$	184,807
Receivables, net of an allowance for credit losses of $7,541 at June 30, 2020, and allowance for doubtful accounts of $4,854 at December 31, 2019			423,000			428,844
Inventories, net			147,304			149,078
Prepaid expenses and other current assets			7,962			17,098
Total current assets			837,103			779,827
Right of use assets			85,236			87,134
Property and equipment, net			176,179			178,080
Goodwill			1,379,821			1,367,918
Other intangible assets, net			176,871			181,122
Deferred tax assets, net			4,358			4,259
Other assets			11,011			5,623
Total assets		$	2,670,579		$	2,603,963
LIABILITIES
Current liabilities:
Accounts payable		$	293,224		$	307,970
Current portion of long-term debt			23,168			34,272
Accrued liabilities			120,689			98,418
Short-term lease liabilities			34,444			36,094
Total current liabilities			471,525			476,754
Long-term debt			694,320			697,955
Deferred tax liabilities, net			174,229			175,263
Long-term portion of insurance reserves			50,608			45,605
Long-term lease liabilities			54,798			54,010
Other liabilities			7,447			1,487
Total liabilities			1,452,927			1,451,074
EQUITY			1,217,652			1,152,889
Total liabilities and equity		$	2,670,579		$	2,603,963
		As of June 30,
		2020			2019
Other Financial Data
Receivable days			49			53
Inventory days			28			29
Accounts payable days			83			78
Receivables, net plus inventories, net less accounts payable		$	277,080		$	306,119
Receivables, net plus inventories, net less accounts payable as a percent of sales (TTM)			10.5	%		11.9	%

TopBuild Corp.
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
		Six Months Ended June 30,
		2020				2019
Cash Flows Provided by (Used in) Operating Activities:
Net income		$	106,268			$	90,035
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			33,311				25,538
Share-based compensation			9,038				7,485
Loss on extinguishment of debt			233				—
Loss on sale or abandonment of property and equipment			320				561
Amortization of debt issuance costs			716				779
Provision for bad debt expense			3,756				3,688
Loss from inventory obsolescence			1,313				1,251
Deferred income taxes, net			(38	)			(21	)
Change in certain assets and liabilities
Receivables, net			1,894				(41,489	)
Inventories, net			538				17,391
Prepaid expenses and other current assets			9,151				14,969
Accounts payable			(16,390	)			(23,823	)
Accrued liabilities			28,188				(1,131	)
Payment of contingent consideration			(413	)			—
Other, net			277				1,031
Net cash provided by operating activities			178,162				96,264
Cash Flows Provided by (Used in) Investing Activities:
Purchases of property and equipment			(20,937	)			(21,982	)
Acquisition of businesses			(20,526	)			—
Proceeds from sale of property and equipment			763				1,961
Other, net			—				22
Net cash used in investing activities			(40,700	)			(19,999	)
Cash Flows Provided by (Used in) Financing Activities:
Proceeds from issuance of long-term debt			300,000				4,998
Repayment of long-term debt			(313,407	)			(11,364	)
Payment of debt issuance costs			(2,280	)			—
Taxes withheld and paid on employees' equity awards			(13,165	)			(8,471	)
Repurchase of shares of common stock			(34,152	)			(19,499	)
Payment of contingent consideration			(428	)			(1,091	)
Net cash used in financing activities			(63,432	)			(35,427	)
Cash and Cash Equivalents
Increase for the period			74,030				40,838
Beginning of period			184,807				100,929
End of period		$	258,837			$	141,767
Supplemental disclosure of noncash activities:
Leased assets obtained in exchange for new operating lease liabilities		$	19,257			$	110,192
Accruals for property and equipment			323				497

TopBuild Corp.
Segment Data (Unaudited)
(dollars in thousands)
		Three Months Ended June 30,											Six Months Ended June 30,
		2020				2019				Change			2020				2019				Change
TruTeam
Sales		$	466,569			$	483,028			(3.4	)%		$	942,442			$	932,410			1.1	%
Operating profit, as reported		$	69,643			$	68,423						$	129,994			$	119,722
Operating margin, as reported			14.9	%			14.2	%						13.8	%			12.8	%
Rationalization charges			857				81							857				199
Acquisition related costs			—				277							4				403
COVID-19 pay			638				—							638				—
Operating profit, as adjusted		$	71,138			$	68,781						$	131,493			$	120,324
Operating margin, as adjusted			15.2	%			14.2	%						14.0	%			12.9	%
Service Partners
Sales		$	216,336			$	213,487			1.3	%		$	430,558			$	417,951			3.0	%
Operating profit, as reported		$	24,155			$	21,151						$	48,825			$	41,748
Operating margin, as reported			11.2	%			9.9	%						11.3	%			10.0	%
Rationalization charges			944				—							944				109
COVID-19 pay			54				—							54				—
Operating profit, as adjusted		$	25,153			$	21,151						$	49,823			$	41,857
Operating margin, as adjusted			11.6	%			9.9	%						11.6	%			10.0	%
Total
Sales before eliminations		$	682,905			$	696,515						$	1,373,000			$	1,350,361
Intercompany eliminations			(36,806	)			(36,403	)						(73,673	)			(70,919	)
Net sales after eliminations		$	646,099			$	660,112			(2.1	)%		$	1,299,327			$	1,279,442			1.6	%
Operating profit, as reported - segments		$	93,798			$	89,574						$	178,819			$	161,470
General corporate expense, net			(7,383	)			(7,130	)						(16,581	)			(16,734	)
Intercompany eliminations			(5,961	)			(6,405	)						(11,795	)			(12,078	)
Operating profit, as reported		$	80,454			$	76,039						$	150,443			$	132,658
Operating margin, as reported			12.5	%			11.5	%						11.6	%			10.4	%
Rationalization charges †			2,376				142							2,376				1,969
Acquisition related costs			(40	)			251							196				903
Refinancing costs			20				—							57				—
COVID-19 pay			692				—							692				—
Operating profit, as adjusted		$	83,502			$	76,432						$	153,764			$	135,530
Operating margin, as adjusted			12.9	%			11.6	%						11.8	%			10.6	%
Share-based compensation			5,130				4,513							9,038				7,485
Depreciation and amortization			19,121				13,062							33,311				25,538
EBITDA, as adjusted		$	107,753			$	94,007						$	196,113			$	168,553
EBITDA margin, as adjusted			16.7	%			14.2	%						15.1	%			13.2	%
Sales change period over period			(14,013	)										19,885
EBITDA, as adjusted, change period over period			13,746											27,560
EBITDA, as adjusted, as percentage of sales change			N/A											138.6	%
† Rationalization charges include corporate level adjustments as well as segment operating adjustments.

TopBuild Corp.
Non-GAAP Reconciliations (Unaudited)
(in thousands, except share and per common share amounts)
		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Gross Profit and Operating Profit Reconciliations
Net sales		$	646,099			$	660,112			$	1,299,327			$	1,279,442
Gross profit, as reported		$	178,054			$	174,922			$	350,011			$	330,618
Rationalization charges			1,079				—				1,079				—
COVID-19 pay			482				—				482				—
Gross profit, as adjusted		$	179,615			$	174,922			$	351,572			$	330,618
Gross margin, as reported			27.6	%			26.5	%			26.9	%			25.8	%
Gross margin, as adjusted			27.8	%			26.5	%			27.1	%			25.8	%
Operating profit, as reported		$	80,454			$	76,039			$	150,443			$	132,658
Rationalization charges			2,376				142				2,376				1,969
Acquisition related costs			(40	)			251				196				903
Refinancing costs			20				—				57				—
COVID-19 pay			692				—				692				—
Operating profit, as adjusted		$	83,502			$	76,432			$	153,764			$	135,530
Operating margin, as reported			12.5	%			11.5	%			11.6	%			10.4	%
Operating margin, as adjusted			12.9	%			11.6	%			11.8	%			10.6	%
Income Per Common Share Reconciliation
Income before income taxes, as reported		$	72,266			$	66,934			$	133,753			$	114,284
Rationalization charges			2,376				142				2,376				1,969
Acquisition related costs			(40	)			251				196				903
Refinancing costs and loss on extinguishment of debt			20				—				290				—
COVID-19 pay			692				—				692				—
Income before income taxes, as adjusted			75,314				67,327				137,307				117,156
Tax rate at 26.0% and 26.5% for 2020 and 2019, respectively			(19,582	)			(17,842	)			(35,700	)			(31,046	)
Income, as adjusted		$	55,732			$	49,485			$	101,607			$	86,110
Income per common share, as adjusted		$	1.68			$	1.43			$	3.04			$	2.49
Weighted average diluted common shares outstanding			33,202,423				34,577,664				33,401,135				34,630,048

TopBuild Corp.
Same Branch and Acquisition Net Sales and Adjusted EBITDA (Unaudited)
(dollars in thousands)
		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Net sales
Same branch:
Installation segment		$	459,820			$	483,028			$	930,828			$	932,410
Distribution segment			216,336				213,487				430,558				417,951
Eliminations			(36,806	)			(36,403	)			(73,673	)			(70,919	)
Total same branch			639,350				660,112				1,287,713				1,279,442
Acquisitions (a):
Installation segment		$	6,749			$	—			$	11,614			$	—
Distribution segment			—				—				—				—
Eliminations			—				—				—				—
Total acquisitions			6,749				—				11,614				—
Total		$	646,099			$	660,112			$	1,299,327			$	1,279,442
EBITDA, as adjusted
Same branch		$	106,325			$	94,007			$	193,592			$	168,553
Acquisitions (a)			1,428				—				2,521				—
Total		$	107,753			$	94,007			$	196,113			$	168,553
EBITDA, as adjusted, as a percentage of sales
Same branch (b)			16.6	%							15.0	%
Acquisitions (c)			21.2	%							21.7	%
Total (d)			16.7	%			14.2	%			15.1	%			13.2	%
As Adjusted Incremental EBITDA, as a percentage of change in sales
Same branch (e)			N/A								302.7	%
Acquisitions (c)			21.2	%							21.7	%
Total (f)			N/A								138.6	%
(a) Represents current year impact of acquisitions in their first twelve months
(b) Same branch EBITDA, as adjusted, as a percentage of same branch sales
(c) Acquired EBITDA, as adjusted, as a percentage of acquired sales
(d) Total EBITDA, as adjusted, as a percentage of total sales
(e) Change in same branch EBITDA, as adjusted, as a percentage of change in same branch sales
(f) Change in total EBITDA, as adjusted, as a percentage of change in total sales

TopBuild Corp.
Same Branch and Acquisition Net Sales by Market (Unaudited)
(dollars in thousands)
	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Same branch:
Residential	$	503,928		$	504,659		$	1,009,615		$	980,794
Commercial		135,422			155,453			278,098			298,648
Same branch net sales		639,350			660,112			1,287,713			1,279,442
Acquisitions (a):
Residential	$	1,606		$	—		$	2,651		$	—
Commercial		5,143			—			8,963			—
Acquisitions net sales		6,749			—			11,614			—
Total net sales	$	646,099		$	660,112		$	1,299,327		$	1,279,442
(a) Represents current year impact of acquisitions in their first twelve months

TopBuild Corp.
Reconciliation of Adjusted EBITDA to Net Income (Unaudited)
(in thousands)
		Three Months Ended June 30,							Six Months Ended June 30,
		2020				2019			2020			2019
Net income, as reported		$	55,496			$	52,051		$	106,268		$	90,035
Adjustments to arrive at EBITDA, as adjusted:
Interest expense and other, net			8,188				9,105			16,457			18,374
Income tax expense			16,770				14,883			27,485			24,249
Depreciation and amortization			19,121				13,062			33,311			25,538
Share-based compensation			5,130				4,513			9,038			7,485
Rationalization charges			2,376				142			2,376			1,969
Acquisition related costs			(40	)			251			196			903
Refinancing costs and loss on extinguishment of debt			20				—			290			—
COVID-19 pay			692				—			692			—
EBITDA, as adjusted		$	107,753			$	94,007		$	196,113		$	168,553

FAQ

What were TopBuild's Q2 2020 net sales results?

TopBuild reported a 2.1% decline in net sales, totaling $646.1 million for Q2 2020.

How did TopBuild's gross margin perform in Q2 2020?

Gross margin improved by 110 basis points to 27.6% in Q2 2020.

What was TopBuild's adjusted operating margin for Q2 2020?

TopBuild's adjusted operating margin for Q2 2020 was 12.9%, up 130 basis points from the previous year.

How much liquidity did TopBuild have at the end of Q2 2020?

As of June 30, 2020, TopBuild had total liquidity of $648.5 million.

What was TopBuild's net income for Q2 2020?

TopBuild's net income for Q2 2020 was $55.5 million, equating to $1.67 per diluted share.